tralac - trade law centre for southern africa

Hotseat Comment

Willemien Denner, a tralac Researcher, comments on increased protectionism and the implication for developing countries.

Since 1945 the world economy has shown high growth rates associated with the liberalization of goods and services and increased capital flows. However the current global financial crisis has raised concerns for many countries regarding present and potential losses that can be suffered in income and employment. The risk of protectionist policies has heightened as the financial crisis deepened and economic activity decreased with rising unemployment.

Since the start of the financial crisis the World Bank has estimated that 78 trade measures have been imposed or implemented. These trade measures include 66 trade restrictions of which 47 took effect. Several countries have raised border barriers, introduced subsidies or stimulus packages for export-orientated or import competing industries and increased the use of trade remedies. A pattern is beginning to emerge of an increase in import licensing, import tariffs and trade remedy utilization to support domestic industries.

Historical economic evidence also suggests a strong link between the increased use of import restrictive trade remedies such as anti-dumping measures and safeguards and an economic downturn associated with recessions. The Global Anti-dumping Database shows that the implementation of product level trade remedies increased by 34 percent in 2008 and in the first quarter of 2009 the utilization increased by 22.3 percent. The imposition of definitive measures in 2009 is projected to be 18.5 percent higher than in 2008.

A number of countries have implemented trade remedies, with South-South trade increasingly being affected by these measures. Developing countries have initiated 74 percent of trade remedy investigations in the period from the first quarter in 2008 to the same period in 2009 with the targeted exporters also primarily being located in other developing countries. However these inward-looking policies risk the retardation of market corrections, distorting trade and triggering retaliation by trade partners.

African countries have not played a major role in the current utilization of import restrictions even though some of these countries’ major trading partners have implemented different forms of import restrictions, investment and finance support and job protection measures. The increased implementation of protectionist policies by or against developing and least developing countries can jeopardise growth prospects and developmental goals, especially for African countries.

Protectionism can lead to higher unemployment and prices with an increase in debt. Protectionist policies arguably lead to an increase in the cost of consumer goods and production inputs. Due to the protection of domestic industries, foreign competition is reduced which can have the undesired effect of inefficient domestic firms.
Export subsidies are concentrated on few products, including dairy, beef and fruits and vegetables. These products can often be produced and exported more efficiently by developing countries. However an increase in export subsidies penalizes developing country producers which do not have access to subsidies and provide an incentive to over produce. This can lead to a surplus in the market leading to lower world prices and limiting the ability of developing countries to compete in local and export markets. African economies are dependant on agricultural exports thus an increase in subsidies can lead to a decrease in revenue and a deterioration of the trade balance for many African nations.
If countries take advantage of the gap between applied and bound rates (water in the tariffs) the potential negative impact on world trade and welfare has been estimated at a decline of 7.7 percent in world trade and US $ 353 billion in world real income. The increase of tariffs on agricultural products will have a dramatic effect on exports and welfare for developing and least developed countries.

The World Trade Organisation (WTO) and the World Bank have indicated that the contribution of protectionist policies to the decline in trade has been limited to date, however looking forward there is a risk of a retreat from trade liberalization and open border policies which has been followed in the past decade. Although the level of trade affected by protectionist policies has thus far been small for most economies, these policies can have important welfare-distorting effects beyond the loss of imports and losses to domestic consumers.

As the financial crisis puts increase pressure on African economies the question remains whether governments will resist political pressure to utilize the implementation of protectionist measures to protect domestic industry and employment? South Africa has already indicated that they are considering raising import tariffs on garments to maximum levels agreed to by South Africa in the WTO. Is this an indication of policy measures to come by African countries as economic activity decrease due to the global recession?


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News

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A report published by the World Trade Organisation (WTO) and the United Nations Environmental Programme (Unep) on Friday stated that opening up trade and combating climate change could be mutually supportive towards realising a low-carbon economy.

EU hits back at trade impasse with Namibia
The European Commission (EC) has lashed out at Namibian Trade and Industry Minister Hage Geingob, arguing that he knew from the start that they would not give written assurances on the concessions on infant industry protection, food security, export taxes, and the free flow of goods agreed to in the negotiations on an interim economic partnership agreement (EPA).

EAC drags feet on EPA
Members of the East African Community (EAC) are yet to make a decision regarding the signing of an economic partnership agreement (EPA) with the European Union (EU), only a month before it expires.

Regional integration key to Africa’s economic development
The global economic crisis requires that existing approaches to international development be re-examined, the United Nations Conference on Trade and Development (Unctad) said yesterday with the release of the ‘Economic Development in Africa 2009 Report’.

WTO prepares to put Doha talks back on track
The World Trade Organisation (WTO) is ready to renew its efforts to put the ongoing round of trade talks on contentious agriculture issues back on track. Official-level talks on these issues, which were primarily responsible for the breakdown in the Doha negotiations in July 2008, will restart at the end of the week in Geneva.



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Events



Updated: Potsdam Spring Dialogues 2009 with the theme “The Key to Success in Peace and Development? Regional Governance in Africa”. Read the Post-Conference Report here.


On 19 June 2009 tralac hosted a Workshop on Regional Integration in Southern Africa. The post-workshop report will be published on our website soon.

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Publications



New Working Paper (An assessment of the trade measures proposed as part of the Department of Trade and Industry's Draft Rescue Package for the clothing and textile industry) by Sean Woolfrey. The working paper addresses the value of the new trade measures proposed by the DTI. The paper begins by providing a brief overview of the clothing and textile industry in South Africa, including an analysis of the recent quota experience. Next it highlights the industry's weaknesses, posing the important question of whether it has a sustainable future. Leaving this question open, the paper examines the trade measures mentioned above, looking in particular at a number of issues that need to be explored when considering an increase in import tariffs, including the scope that exists for such a move, the nature and coverage of the proposed tariffs, and the impact that such an increase would have on the South African Customs Union (SACU), as well as on South Africa's trade relations with developing country exporters of clothing. Read more...

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AGOA.info


2009 AGOA Forum
The 2009 AGOA Forum takes place in Nairobi, Kenya, from 4-6 August. Follow the link to the Forum's dedicated website on AGOA.info. Programme details have been published and may be downloaded from AGOA.info at the following links:

AGOA 8 Ministerial Session
AGOA 8 Private Sector Session
Registration Form Private Sector
AGOA 8 Civil Society Session
Data to April 2009 available

Trade data to April 2009 has been updated on AGOA.info. New data to May will be released on 11 July. Exports under the Act remain well below comparable 2008 levels, with most countries showing significant declines in US-bound exports. Nigeria and Angola (-70% and -47% YOY respectively) showed some of the largest year-on-year contractions in exports, mainly as a result from depressed oil prices and lower demand in the US. Southern African countries are also feeling the impact of difficult trading conditions: South Africa's AGOA exports have declined by 28% to April, Lesotho is down 9%, Botswana 16% lower and Namibia has lost 49%albeit off a very low base. Swaziland is currently the only SACU country with higher year-on-year exports under AGOA, and is showing a 21% increase in exports to the USA.

Bilateral US-Africa country trade profiles

Profiles of disaggregated bilateral US-Africa trade, by country, has been updated to reflect March 2009 data. This includes regional profiles - SACU, BLNS, COMESA, ECOWAS, and CEMAC. Follow this link

Other updated AGOA data sections include disaggregated bilateral trade profiles for each AGOA country individually (as well as within various regional configurations) , aggregate bilateral trade, preferential trade under AGOA / GSP and sectoral data from AGOA-eligible countries by value and as a proportion of US imports, as well as sectoral new AGOA and GSP AGOA data. Textile data, which is categorised by rules-of-origin category (for example, it distinguishes garments made from local or third country fabric), is available both by value and by volume. Data to March 2009 shows that exports appear to be relatively resilient to difficult global trading conditions: Aggregate garment exports under AGOA are down 4% for the year, with the sub-category permitting the use of third country fabrics shwoing a 2% drop. Aggregate garment exports under AGOA are down 11% for the year, with the sub-category. Export data to March 2009 is available at this link.

The current quota period commenced in October 2008 with the latest available quota utilisation rates for the period October-May showing an overall uptake of 10.55%, and 20.48% under the 3rd country sub-quota. The total allowable quota for the October 2008-September 2009 annual period has been set at 1,711,900,006 square meter equivalents (SME), which for the first time is lower than the quota allocated to a previous year (2007/8: 1,746,798,542).

Follow these links to diagrams showing clothing exports under AGOA, and quota utilisation during the current quota period.

Trade acronyms and terminology
Visit AGOA.info's alphabetically-ordered database of trade-related acronyms and terminology


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